Nothing appears to be blocking Netflix’s (Nasdaq: NFLX) growth as it continues to add subscriber base and deliver financial performance that outpaces market expectations. The recently reported quarterly results were no different.
Netflix’s Q2 revenues grew 33% over the year to $2.78 billion, ahead of the Street’s forecast of $2.76 billion for the quarter. EPS of $0.15 was shy of the market’s projections of $0.16 for the quarter.
The biggest surprise came in terms of the addition of subscribers. During the quarter, it added 5.2 million total subscribers, compared with the Street’s estimates of growth of 3.23 million subscribers. Domestic subscriber base grew by 1.07 million, compared with the Street’s forecast of an addition of 631,000 subscribers. It added 4.14 million international subscribers, compared with the estimated 2.59 million subscriber growth. The subscriber growth was attributed to the popularity of its content which led to higher-than-expected acquisition across all major territories.
For the current quarter, Netflix projected revenues of $2.969 billion, and EPS of $0.32. It forecasts an addition of 750,000 domestic subscribers and 3.65 million international subscribers. The analysts had forecast revenues of $2.876 billion and an EPS of $0.23. The market expects an addition of 725,000 domestic subscribers and 2.59 million international subscribers.
Netflix’s Content Concerns
For Netflix critics, the worry has always surrounded the rising content costs. Netflix may have been profitable on an accounting basis, but it has been burning through cash to produce content. It expects to burn $2.5 billion in cash as it gears up its content and marketing spend. The content investment is paying off for Netflix. Its original series, which include titles like Master of None, Unbreakable Kimmy Schmidt, and Stranger Things, received 91 Emmy nominations this year. It hopes to continue that run with newer content that includes the addition of titles like Okja and War Machine and the addition of Macon Blair for his directorial debut of I Don’t Feel at Home in This World Anymore.
It also continued to add to its list of partners and added a partnership with Altice/SFR France. Through the partnership, Netflix will be sold in a package with high speed Internet and TV services.
With international expansion, Netflix has also had to focus on localized content development. It has already made a place for itself in Canada, Latin America, Europe, and Australia. But the company is finding it more difficult to expand in Asia. To help drive growth in the region, it is not only deploying more local staff, but also focusing on localized content.
Netflix will need to keep its content engine running considering that Apple is stepping up gears in the market. Earlier last month, Apple announced the addition of TV executives Zack Van Amburg and Jamie Erlicht from Sony Pictures Television to its studios. The two are known to have presided over the creation of series like Breaking Bad, Better Call Saul, The Crown, Bloodline, and Sneaky Pete to name a few. Besides renowned executives, Apple also has access to significant cash to the tune of $257 billion.
Netflix’s stock is trading at $182.68 with a market capitalization of $78.8 billion. It had touched a record high of $189.69 earlier this month. It has recovered from the low of $90.10 it had fallen to in August last year. I still maintain that an acquisition of Netflix by Apple would make a ridiculous amount of sense!